Industry takes fight against tax rule changes to Ottawa

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A private lender – backed by two of Canada’s largest mortgage broker associations – will appear before an Ottawa Finance committee Wednesday to voice industry concerns about proposed tax changes that may limit broker access to alternative lending.

“The big concern for mortgage brokers is the ability to have financial options available to them and their clients,” Dean Koeller, immediate-past president of the Alberta Mortgage Brokers Association, told “We have a list of 70 MICs across the country that are supporting us on this legislation change.

"Some have suggested that they will close down due to an inability to meet the new ownership levels, others will have to divest a significant portion of their investments to provide shareholders with the equity to pay tax penalties. Others will not be able to grow due to related party issues or ownership issues or tax penalties being imposed.”

Koeller’s brother, Dale, VP of private lender Calvert Home Mortgage, will represent those shared concerns in Ottawa today. Both AMBA and MBABC, along with several MICs, have signed off on his speaking points.

The underwriter is scheduled to address a Finance standing committee on proposed changes to the country’s federal tax regime as part of the government's Bill C-13. The legislation is meant to shore up tax loopholes around investment corporations, among other key areas.

Chief among the amendments concerning MICs is the move to limit to less than 10 per cent any one individual's shareholdings in a MIC where only a portion of that investment is held in an RRSP or RRIF. Currently, the Income Tax Act allows for 25 per cent stake.

Dale Koeller will also share industry concerns about a proposal to expand the definition of partners of “a related party,” in terms of MIC shareholders, to include any blood, marital or adoptive relative and not just a spouse or minor child.

MIC managers argue that could reduce the scope of ownership and add high levels of punitive taxes for certain shareholders. The new legislation will have the effect of taxing RRSP and RRIF income and capital gains immediately, with no transition or notice period.

“It is important to note that the impact of these rules changes will have a varying effect from company to company,” said Dean Koeller, Calvert’s CFO. But “either way, if MICs have less capital resources or are not operating at all, this will reduce the financial resources that brokers will have available to assist their clients with their financial needs.”

A clause-by-clause hearing will take place in Ottawa on Nov. 4, with the committee expected to report back to the House next week.

  • Inglis Commercial Mortgages Inc. on 2011-11-03 5:36:30 AM

    This proposed change would be absolutely devastating to the industry and would inadvertently give more control to banks & large institutions and decrease overall competition.

    The changes would undoubtedly cause private lending rates to increase significantly, essentially killing an entire industry. These changes are supposed to be for tax loop holes, however, the immediate and long term effects ARE very destructive. Not only are the MIC's owners, employees and shareholders affected but everyone that is directly or indirectly involved in a mortgage transaction; lawyers, appraisers, mortgage brokers & their support staff(s) and most importantly the consumer.

    The long term effects on the economy would far outweigh the increased tax revenue.

  • AMP Broker on 2011-11-03 8:35:03 AM

    The industry needs to address potential self dealing. The legit ones have been caught up in CRA's quest to prevent RRSP withdrawal schemes.
    Im glad CAAMP and AMBA are the ball on this one.

  • Larry Frondall, CMS Real Estate Ltd, Calgary on 2011-11-03 8:40:01 AM

    First and Foremost, Dean & Dale Koeller from Calvert and Dave McKitrick from Alta West should be Commended for taking a lead position on these issues and also for taking the initiative to create a Private Lenders Forum here in Alberta. This forum is giving a number of private lenders a chance to meet and discuss the changes and challenges being placed upon us and also to educate ourselves and allowing us to share ideas with similar groups in BC and Ontario.
    Keep up the Good Work Guys!

  • Craig Williams on 2011-11-03 12:48:04 PM

    Big brother is out of control, legislating the lives out of the honest hard working individuals of this country all under the guise of protecting us from oursleves while all they are really protecting are their useless positions and exhorbatant salaries, benefits an dpensions. Enough is enough.

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